The Financial Services Compensation Scheme (FSCS), which protects savers against loss if financial firms go bust, has reduced the maximum amount of money that it will reimburse. Previously this level was set at £85,000, but now it has been lowered to £75,000.
The amount covered by the FSCS is reviewed every five years, and each time is set roughly in line with the Europe-wide €100,000 protection limit. The latest change is therefore due to the recent, significant devaluation of the euro against the pound. When the rate was last set five years ago, £85,000 was roughly equivalent to €100,000. Now, however, the fall in the euro’s value means that the sterling equivalent of Europe’s protection level is closer to £72,000.
This has left a number of cautious savers with something of an administrative challenge. Savers who hold multiple accounts with various banks and building societies are now frantically rearranging their finances and moving funds around in order to ensure that they will still be fully protected should any given institution that they hold savings with fail.
In light of the new limit, additional measures have been introduced to give savers the opportunity to rearrange their funds in this way. These measures are the result of major talks between the Bank of England and the finance industry, and give savers who exceed the new limit the option to move some of their money with no penalties as long as they do it before the end of this year. This includes money taken out of fixed-rate accounts and ISAs, which usually involve charges or penalties to interest for early withdrawals.
There are limitations on this allowance, however. Savers cannot choose a “transactional” account – i.e. a current account or other regularly-used, easy access account. Furthermore, if you hold more than one account with the bank or building society you are moving money away from, then they are entitled to decide which account you should take the money out of. However, many major institutions including Barclays, Nationwide, Lloyds and NatWest have said that they will allow their customers to have a choice.
Customers withdrawing money from fixed-rate bonds will need to contact their providers directly in order to avoid early withdrawal penalties, and fill in the appropriate Financial Services Compensation Scheme withdrawal form. Those moving money between ISAs, meanwhile are advised to contact the provider of the receiving account and ask them to manage the transfer to avoid penalties to their tax benefits.
Those who have accounts with more than one of Halifax, Bank of Scotland, Saga, Intelligent Finance, BM Savings or AA Savings should also be aware that these brands all come under a single banking license. As such, if you have money spread across more than one of these brands it will only collectively be covered by a single £75,000 compensation allowance.